gOVerNaNCe
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the present composition of the board, its strengths and weaknesses;
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the qualities and skills the organisation needs on its board
- experience of industries and professional disciplines;
- knowledge and experience of corporate governance; and
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personal qualities;
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the changing needs of the organisation; and
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the expected pattern of retirements on the board.
Dimensions of board competency
Board members cannot perform to expected standards without
competencies, but specific competencies such as legal or medical
qualifications, for example, cannot guarantee that they will perform
adequately as directors. Sometimes extremely competent individuals
may fail on a board due to personal or environmental factors out of
their control. Based on personal experience in reviewing numerous
boards, an analysis of director competencies should consider three
areas, as illustrated in Figure 1:
1. Behavioural: both personal and interpersonal competencies,
which provide the platform for most work and governance roles.
For example: common sense and sound judgment; enthusiasm
and resilience; analytical decision-making ability; and effective
communication skills;
3
2.
governance: eg. financial literacy, strategic awareness, risk
management orientation; and
3. technical: eg. legal, accounting and clinical.
Clearly, directors will not be strong in all areas. Specific technical
skills, such as legal or engineering qualifications, are generally not a
requirement for a majority of board members.
Thus, current directors, as well as board candidates, should have
well-developed behavioural competencies; be able to master the
governance competencies; and add functional expertise in the form of
their technical competencies to a board-management team. In some
NFPs, the technical expertise a board member brings may not be
regularly available to the management team and can be invaluable.
For example, knowledge of political processes and political advocacy
can be key to financial stability and/or to influencing the government
agenda. Such specialist knowledge may outweigh any lack of
governance knowledge on the part of the director that is up to the
individual board.
Figure 1: Board competencies
What is important for a board is that it has a good understanding of
what skills it has and those skills it requires. In doing so, it should
take a strategic perspective. This will enable the board to adapt to the
organisation's current and future envi ronment, particularly in light of
issues such as climate change.
Board skills analysis can also be effective in cases where replacing
the current membership is not an option. Where such a board finds it
is lacking in essential competencies - while not an ideal solution - the
slack may be taken up by a highly competent management team or,
if the budget permits, by external advisors and consultants. That the
board has knowledge of its deficiencies and addresses these gaps in
some form or another will go a long way towards individual board
members demonstrating the care, skill and diligence expected of a
director.
why should we conduct a skills analysis?
The majority of directors in the NFP sector are volunteers. They
give freely of their time to benefit the organisations they govern.
Is it then fair that they be asked to undergo a skills analysis?
Some current or potential board members may even find such an
assessment threatening, as I have discovered when conducting board
skills assessments. This should not be an issue if the assessment is
framed in the context of the challenges the organisation is facing in
the foreseeable future and as a way to develop a "director position
description". It can also be seen a tool to help individual directors
improve their performance, for example, through focused governance
training or through the self-awareness gained during the assessment
process.
Boards that make the expectations on directors clear from the outset
may even find that prospective board members will reconsider
their nominations if they know they do not have the requisite skills,
knowledge and abilities. These expectations include the director's
ability to commit time to the role a sometimes overlooked aspect of
board membership. Another expectation may be that a director will use
his or her networks to benefit the organisation, as is often the case in
NFPs. However, if such an expectation is never communicated to that
director, those networks may well prove worthless.
Accountability is the cornerstone upon which all the rest of
governance is built and an accountable board takes seriously its
ultimate responsibility for the organisation's performance. Taking
the time to assess its current competencies and the competencies it
will need into the future is one way for a board to demonstrate its
accountabilities to the organisation as a whole and to key stakeholders
including members and funders.
NFP boards must, out of necessity, respond to changes in the
competitive environment that may create the need for new skills
in areas such as marketing, technology and public relations. A
board should reflect a mix of experiences and skill sets relevant to
the organisation and its governance, but it is up to each board to
determine, and review periodically, what those experiences and skill
sets are and what the appropriate mix should be as the organisation
faces different challenges over time. n
Details of Effective Governance's services, including board
and individual director evaluation, can be found at www.
effectivegovernance.com.au. For more information, please contact
Judith Winn, Senior Advisor, Effective Governance on (07) 3510 8111 or
via email at Judith.Winn@effectivegovernance.com.au.
1 The study included surveys of over 1,000 directors. The organisations involved
covered a wide range of businesses, from large to small, publicly listed as well as
government and family-owned, and based in every major industry sector.
2 Thomas, C., Kidd, D., & Fernández-Aráoz, C. (2007). Are you underutilizing your
board. MIT Sloan Management Review, 48(2), 71-76.
3 All boards will also generally require certain broad knowledge such as an in-depth
knowledge of the company and an understanding of the industry in which it
operates. This knowledge can be developed during the induction process and early
in the director's tenure.
Finding the gaps
assessing the skills on your board
B
uilding the leadership and governance capacity of managers and directors in the not-for-profit sector is the
subject of one of the Productivity Commission's draft recommendations in its research report (Contribution of
the Not-for-Profit Sector
) released in October 2009. Draft recommendation 10.4 states:
Australian governments should provide support to develop and promote training for not-for-profit
management and boards in governance and related areas. They should explore the options for improving
access to and quality of such training in these areas with peak bodies and appropriate training providers.
As with commercial organisations, NFPs require effective leadership from the governing body (whether it is a board,
management committee, council or other grouping) and chief executive, and a management staff with the necessary
skills to enable the organisation to develop and grow. Ensuring this is an ongoing challenge. A board's effectiveness will
depend on a variety of factors. Foremost among those factors will be the competency and commitment of individual
board members, their understanding of their fiduciary duties and their ability to work together as a group.
A study of more than 100 board reviews undertaken globally over a five-year period by Egon Zehnder International
1
,
revealed that most boards face five key challenges:
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Inadequate competencies: with some board members not fully qualified to play their most critical roles;
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Lack of diversity: discourages robust, constructive debate and stifles independent thinking;
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Underutilisation of skills: even competent directors feel their skills are underutilised;
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Dereliction of duties; and
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Poor director selection and assessment processes.
As the Egon Zehnder study reveals, many boards either lack competent members or underutilise the competencies of
skilled directors.
what competencies should directors possess to be effective?
Competencies describe what people need to do to perform a job well what has to be done and to what standard.
Unfortunately, there is no simple answer to the question of just what competencies a director should possess. It depends
on a number of factors such as the organisation's industry (e.g., health, education, social services), current and anticipated
challenges, the regulatory environment, the organisation's business or operational model, required roles of the board and
the capabilities of the senior management team.
However, a board wishing to move to a higher level of performance should consider analysing the capabilities of
those who govern the organisation to ensure their skills are sufficient to carry out current and emerging roles. This is
one way to reduce the risk to an organisation and to board members themselves from poor decisions made because of
inadequate knowledge of corporate governance, strategy, compliance, risk management or the financial aspects vital to
organisational viability. This will involve consideration of:
technical
governance
behavioural
Technical/professional skills and specialist
knowledge to assist with ongoing aspects
of the board's role.
The essential governance knowledge
and understanding all directors should
possess or develop if they are to be
effective board members
The attributes and competencies
enabling individual board members
to use their knowledge and skills to
function well as team members and to
interact with key stakeholders
James Beck, Managing Director, Effective Governance